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Joshua Sharf

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The Cost of Lawsuits

The Wall Street Journal this morning discusses our unpreparedness for an avian flu pandemic:

The U.S. once boasted a large vaccine industry. But in recent decades drug makers have exited the business, for reasons including low profit margins, exposure to lawsuits and manufacturing difficulties. As a result, the U.S. has lost much of its capacity to produce vaccines for seasonal flu, leaving it largely dependent on a plant in Pennsylvania, which is owned by Paris-based Sanofi-Aventis Group

Let's leave the question of whether or not Senator Salazar still thinks medical lawsuits are cheap, or whether he'll think so after the poultry-farming population of his state heads for the cities.

Tellingly, the Washington Post covers the story as a governmental issue:

"The good news is, we do have a vaccine," Leavitt added. But he also said there isn't an ability to produce it quickly enough or in sufficient quantity in the event of an emergency.


As for treatment, HHS last month began spending $100 million for the first large-scale production of a bird flu vaccine. But the department has been criticized for only stockpiling enough of the anti-flu drug Tamiflu for several million people. The Senate last week passed legislation that would increase those purchases by $3 billion.

Even the business section focuses on the local company, rather than the national problem:

The government recently awarded a $100 million contract to Sanofi-Aventis SA for an undisclosed number of vaccines that target the current strain circulating, called H5N1. But there are about 16 strains of bird flu, and the government wants Gaithersburg-based MedImmune to create vaccines for each.

And Washingtonians think provincials are, well, provincial. There's no discussion, none at all, of the wider reasons why our vaccine-production capacity is so limited in the first place, and no discussion of what's being proposed to fix the problem.

None of this is to suggest that invididually, businessmen are better decision-makers than bureaucrats. The Journal continues:

Though infectious diseases are huge killers, with about 35,000 to 40,000 Americans dying each year from seasonal flu, big drug companies are largely ignoring investing in vaccines. Instead, they are placing their bets on chronic diseases or on lifestyle drugs with big profit potential, resulting in a growing public-health problem.

But collectively, dispersed decision-making is better than central control, because the ideas will likely be there come crunch time. And don't let the sheer number of biotechs fool you. Much of the funding for the small, startups comes from the large drug companies, who will still set the research priorities.

As in other cases, Washington has over-regulated an industry (in this case, through lawsuits), taxing away its ability to place multiple bets and invest in excess capacity, and is now wishing to snap its fingers and will the product out of thin air. It's not surprising that a business newspaper would understand this, while a Washington paper would focus on the government's disaster-response planning. But enlightened regulatory policy can make governance easier down the line. This is a textbook case of bias-by-omission, where questions don't get asked, ideas don't get considered, conclusions don't get drawn, because they don't fit the underlying assumptions.

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